For a country other than Australia, analyse its economic growth and development.

Poland

Poland has seen itself shift from a socialist state suffering from the economic effects of poor
economic management, to the largest emerging economy within central Europe. Not only has
this shift changed the worlds economic view upon Poland, but grown the economy and
improved economic development for its residents. This essay will examine the economic
strategies involved, the impact upon economic growth and development as well as Polands
future challenges.

Formerly a socialist state caught in the Cold War era, Poland was highly undeveloped both
economically and socially. With the government controlling majority of the decisions in the
country, citizens had little chance to grow the economy themselves through consumption as
to fund investment forced accumulation (savings) occurred. Excess regulation of wages saw
poor productivity resulting in disappointingly low growth rates. The focus on capital intensive
sectors and non-renewable resources such as fuel saw material shortages emerge in the
1960s, with other sectors such as agriculture and consumer goods neglected. Inflation,
unemployment and external instability were all rising. The economy was creating a poor
quality of life for citizens, causing the trade union movement solidarity to come to power in
1989 in hope of transforming Poland into an economic powerhouse.

Solidarity immediately began transforming the Poland economy, engaging in shock therapy.
The once Centrally Planned Economy transitioned into a Market Economy, simultaneously
moving from a close economy to an open, liberalised economy. Widespread systematic
reforms were implemented to every aspect of the economy and implemented quickly to
reduce the public resistance of the some-what painful changes.
An increase in GDP over a period of time, economic growth, differs from economic
development which looks at both the growth in the economy as well as the material standards
of living and quality of life factors.
Under the Balcerowicz Plan advised by economist Sachs, four main reforms helped create
economic stability in an economy on the verge of insolvency.
Firstly, macroeconomic stabilisation was crucial in embracing globalisation and integrating
Poland into the world economy. Fiscal discipline was combined with the floating of the Polish
exchange rate, leading to financial deregulation and exposing Poland to market forces. A more
accurate valuation of the Polands currency allowed other economies to have greater
confidence in the economy through the translucent nature a floating exchange rate.
Secondly, the economy went through a period of dramatic liberalisation. The price mechanism
(the use of supply and demand to determine prices) was adopted which resulted in more
efficient allocation of resources as the true value of goods/ services could be determined. The
removal of trade barriers and protection to 5.5% was crucial for the integration of Poland
with Europe and the global economy to improve growth. An export-led development strategy
encouraged trade flows increased competitive pressure whilst boosting economic growth.

Financial controls were eased, allowing Foreign Direct Investment to play a role in Polands
global economic integration. The company tax rate was decreased from 27% to 19%, foreign
exchange laws simplified and reduced income tax levels. Due to its proximity to affluent
markets such as Germany and low cost inputs such as labour, many transnational
corporations have found Poland an attractive location for investment.
Thirdly, privatisation of government owned assets established a more efficient use of
resources. It is thought that public resources have higher levels of wastage and inefficiencies
than privately owned resources. Also, by selling resources the government experienced a
large inflow of capital which was able to be used in other areas to develop the economy.
Fourthly, Poland accepted financial assistance from the International Monetary Fund (IMF).
Foreign debt was cut by 50% in order to help Poland recover from the difficult short-term
effects of the shock reforms.

Yet, have these strategies worked for Poland? By examining the improvement in economic
growth and development, economists agree that the reforms were necessary for Poland to
become an emerging economy.
Economic growth has dramatically improved from the dismal levels seen prior to the
economic reforms. With a Gross Domestic Product (GDP) averaging $420 billion and growth
averaging 4.6% in the past decade, Poland has benefitted greatly from the structural changes.
Yet, the World Bank estimates that it will reach the average per capita income of EU nations
by 2050, resulting in its classification as a middle-income economy. Trade reforms greatly
improved economic growth, allowing Poland to increase its income through heavy industrial
exports. In response to changing markets, the export base was diversified heading itself from
a downturn in external trade, yet is still largely reliant on imports of ETMs such as
electronics.
Economic Development in Poland has positively changed as a result of the reforms, but still
requires greater government and economic intervention to improve living standards. The
Human Development Index (HDI), a measurement of life expectancy at birth, educational
attainment and the GNI per capita, rose since transition to 0.875. Performing well in the adult
literacy rate and education, Poland suffers from a low level of technological integration in the
economy. The health status is relatively poor due to low spending. The Gross National Income
per capita is the lowest in the European Union (EU) at $16,000 (PPP). Income inequality
increased from a GINI index of 24.9 to 34.9, with a growing gap between urban areas and poor
rural areas who face inequality of opportunity and a self-perpetuating poverty trap.
Despite being one of two economies in the EU to avoid recession during the 2008-09 Global
Financial Crisis, the economy still faces many challenges such as persistent unemployment
problems in unemployment soaring to over 20% in 2004 before steadying to 12% in 2011.
Highly vulnerable to cyclical patterns and persistent structural issues, unemployment needs
to focus on major labour market reforms.
Exposure to overseas contagion has left Poland not immune from its European trading
partners. The banks large foreign-currency liabilities and dependency on cyclical portfolio
investment has become an area of instability in the event of a deeper liquidity crisis. The zloty

depreciated greatly during the GFC, exposing the vulnerability of the economy to capital
flight in response to speculative attacks.
Large levels of public debt are undermining international confidence in the economy, with
levels above those needed to adopt the Euro as planned.

Policymakers must address the complex issues of economic growth and development faced by
Poland through both macro-economic and microeconomic reform. To reduce the financial
vulnerabilities of the economy, fiscal consolidation is the best option. Lowering the deficit will
limit repayment pressures, keep external debt at a manageable level and enhance fiscal
credibility for foreign investors.
To combat unemployment and low work-force participation, direct development of jobs and
education in rural areas is needed to increase poorer citizens access. By providing greater
opportunities for people to gain an education which can lead into a job, it is crucial to invest in
long-term education. By promoting urban growth in poorer rural areas, a greater amount of
investors could establish TNCs in the emerging economy, providing more jobs in those
regions whilst improving both economic growth and development. To improve living
standards, greater expenditure on health is required. The development of a more efficient
private health sector would ease the substantial limitations in access to care and persistent
inequalities. The unemployment age should be equalised for both men and women, with the
pension ages to 67 by 2030 instead of 2040 to create greater public sector savings.

The globalisation experience of Poland demonstrates both the opportunities and difficulties
which have arrived in turn for pursing higher economic growth and development. The rapid
change undertaken must be followed with continuous reform to best suit the economy to the
changing global economy to ensure it continues on its path of growth in the face of looming
future challenges.